Microsoft: the Rodney Dangerfield of open source

If you haven't been following the latest developments in the open source world, here's an interesting development. The Open Source Initiative (OSI) has just certified two Microsoft licenses as open source.

This is a big deal. OSI is the organization that determines which software licenses qualify as open source, according to a list of 10 criteria. Microsoft submitted two of its shared source licenses, the Microsoft Public License (Ms-PL) and the Microsoft Reciprocal License (Ms-RL) to OSI, which generated an enormous amount of debate within the open source community concerning Microsoft's motives and whether OSI should approve such licenses.

In the end, however, OSI gave the nod to the two Microsoft licenses. OSI president Michael Tiemann wrote, “The decision to approve was informed by the overwhelming (though not unanimous) consensus from the open source community that these licenses satisfied the 10 criteria of the Open Source definition, and should therefore be approved.”

Lora Bentley's blog on IT Business Edge has a good round up of the news.

Microsoft's motives
So why is Microsoft, whose CEO Steve Balmer once referred to the open source operating system Linux as a "cancer," now seeking approval of its two licenses as open source? I think the answer is two fold.

First, Microsoft needs to do everything it can to counter the perception (and reality) that it has monopoly power. For example, it is having to jump through very small hoops in Europe in order to comply with a 2004 anti-competition EU court ruling. Just this month it has agreed to make workgroup server interoperability information available to open-source developers. Like it or not, Microsoft has to open up and if it is going to open up it might as well do so on its own terms.

Second, open standards are increasingly valued by buyers in their technology decisions. For example, three years ago the State of Massachusetts proposed a mandate that all state documents be saved in open, standards-based file formats. This move nearly cost Microsoft the loss of its entire Office business in the state. Only intense lobbying by Microsoft got the state to draft specifications that allows state workers to continue using Microsoft Office, as long as they used its open XML format to save documents. Openness is part of the buying decision for many purchases, and if Microsoft wants to win it has to open up.

No respect
Which leads to a paradox. Why does Microsoft get so little credit for its move to open source, while companies like Apple get very little criticism for its continued reliance on proprietary systems?

Apple really likes open source--as a component of its offerings. For example, Apple incorporates open source code from GNU, OpenBSD, NetBSD, and FreeBSD into its Mac OS X operating system. But when has Apple ever--I mean ever--released any of its own code as open source? Its iPod music format is proprietary. iPhone handheld device can only operate on Apple's partner AT&T's network. Apple takes all kinds of legal and technical measures to keep these products closed.

Yet many of the same folks that criticize Microsoft for its perceived lack of openness are carrying iPhones and iPods.

Even a small thing like blogging shows how little respect Microsoft gets for openness generally. There is probably no company in the world that has more of its employees blogging--with corporate approval but little corporate control--than Microsoft. In contrast, Apple is like the old Soviet Union. The firm does not allow employees to blog as Apple employees, in line with its near-obsessive attempts to control information. It even posted a notice at its developer conference last year warning attendees not to blog any information presented.

Yet, nearly everyone thinks of Apple as cool.

Microsoft's public and private war against open source, historically, has a lot to do with its credibility gap in the open source community. Read the Halloween Documents if you don't know what I'm talking about. And, much of it simply goes with the turf of being the largest software company in the world.

The reality, however, is that even Microsoft is being forced by the market into open standards and open source. And that's good news for technology buyers.

Update, Oct. 25. A commenter (read here) points out that Apple released Webkit and Darwin as open source. Webkit is an application framework built with code that Apple developed along with components of the KDE open source desktop environment. Darwin is a desktop OS built with code from other open source projects along with code that Apple got from its acquisition of NeXT. I stand corrected.

Some of the other comments serve as evidence of my main point: Microsoft does not get much credit for open sourcing some of its code and--because of its own behavior in the past--may never get respect. It is probably being forced into openness for the reasons I outlined in the post, but regardless, Microsoft's actions are good for buyers.

Related posts
More on Microsoft's attempted patent shakedown of open source users
Microsoft threatens Linux users
Strange bedfellows: Microsoft and Novell in Linux deal
The economics of open source

SAP wins at Wal-Mart but reports slowing growth in U.S.

SAP just reported its third quarter results, with a 11% growth in new license sales worldwide but a measly 3% growth in the U.S. New license sales growth was stronger in other markets: 14% in EMEA and 25% in Asia-Pacific. SAP said it now expects overall software and related sales for 2007 to reach the upper end of its estimate of 12% to 14%.

SAP's growth vs. Oracle's
These results do not look great in comparison with Oracle's most recent quarter (its Q1). Last month Oracle reported a 35% increase in new license sales, including a 65% increase in application software revenue. Of course, Oracle's results include the benefit of its new acquisitions of Hyperion and Agile Software. Its not clear to me how much of the increase is due to revenues from those product lines, but it certainly can't explain all of the difference from SAP's growth rates.

Although the SAP versus Oracle story is interesting, I'm more concerned with what SAP's results mean for the business software sector overall in the U.S. I note that the market has been strong over the past couple of years, based on financial results for the major vendors as well as observations of the general level of sales activity. Do SAP's quarterly results point to a slow-down? Oracle's results seem to indicate a more positive outlook, although Oracle will say that SAP's slowing growth is caused by Oracle's winning deals against SAP. Complicating the picture: SAP claims its market share is increasing in the U.S., which is hard to imagine in light of the disparate growth rates of SAP and Oracle, unless they are both taking market share away from smaller players.

Win at Wal-Mart
Separately, SAP announced that it had won a deal with Wal-mart for financial management software. Wal-Mart is known to run mostly in-house developed systems, but apparently felt that the horizontal nature of accounting applications justified a departure from this strategy. SAP will replace some legacy systems while integrating with other internal systems. Terms of the purchase were not disclosed, but--this being Walmart--there's no way this can be a small deal.

In light of SAP's battle with Oracle, the Wal-Mart deal gives bragging rights to SAP--assuming the implementation is successful. Unfortunately, it won't be a quick. The first phase of a multi-phase implementation is expected to finish in 2010.

Related posts
Oracle reports another blow-out quarter
SAP sales jump, defying Oracle's PR campaign
Oracle bids for BEA Systems
SAP to buy Business Objects

Oracle bids for BEA Systems

There seems to be no end to Oracle's acquisition campaign. The latest move is a $6.7 billion bid for BEA Systems, one of the leading vendors of middleware. A successful bid for BEA will greatly strengthen Oracle's middleware and tools business and take a major competitor out of the picture.

Oracle has been hounding BEA, unsuccessfully, to sell for years. But BEA's recent share price decline, driven by its problems in accounting for stock option grants, has put BEA in a much weaker position. It hasn't helped that last month Carl Icahn purchased 13.2% of BEA's shares, hoping to force BEA to sell out to someone.

So now Oracle has stepped in as a willing buyer.

An AP story on Oracle's bid points out that Oracle has demonstrated its willingness to fight in order to complete acquisitions in a hostile manner if necessary. Its PeopleSoft acquisition in 2003 is the best example. There, Oracle even fought the U.S. Department of Justice, which sued Oracle in order to block the deal on anti-trust grounds.

It doesn't sound as if Oracle will need to fight that hard for BEA, however. BEA is wounded, and too many stakeholders will rather see Oracle's bid succeed, at a 25% premium over BEA's share price yesterday.

But Oracle's problem might not be BEA's willingness to sell--it might be other bidders. Carl Icahn spoke to CNBC a few minutes ago and indicated that he expects other potential buyers to make offers. He specifically mentioned H-P and IBM.

To which I might add, what about SAP? It's unlikely, with SAP just having offered nearly $7 billion for Business Objects, but it sure would be make things interesting.

Update, Oct. 13. As it turns out, according to the Wall Street Journal, Carl Icahn has already mentioned SAP as a potential alternative bidder for Business Objects. However, there appear to be reluctance on the part of all three bidders (IBM, SAP, and H-P) to make offers.

A person familiar with IBM's thinking said IBM is unlikely to enter the bidding fray, because IBM typically buys small software companies, and the Oracle offer for BEA is already about twice as much as IBM has ever paid for an acquisition. Plus, this person said, there is enough overlap between IBM's WebSphere software and BEA products that it would probably raise antitrust scrutiny. An IBM spokesman declined to comment.

A person familiar with SAP's thinking said the company would be unlikely to be interested in buying BEA because it wants to focus on a competing product, called NetWeaver. An SAP spokesman declined to comment.

An H-P representative said H-P isn't interested in entering BEA's market, but declined to comment specifically on whether it had any interest in buying the company.

If so, Oracle may not find much competition to its offer.

Related posts
SAP to buy Business Objects
Oracle/PeopleSoft: deal is done

SAP to buy Business Objects

Vendor consolidation in the business intelligence (BI) space continues with SAP announcing its acquisition of Business Objects, one of the last independent best-of-breed vendors of such solutions.

The move is, in a way, an answer to Oracle's acquisition of Hyperion, a Business Objects competitor, earlier this year. Although SAP already has significant BI capabilities, it apparently felt the need to strengthen its offerings. Its acquisition of Business Objects certainly fills the bill.

Consolidation in the BI market has been going on for some time now. In 2003, Business Objects itself acquired Crystal Decisions, a popular developer of end-user reporting tools, used by quite a few enterprise system vendors. Shortly thereafter, Hyperion acquired Brio. As mentioned above, both Hyperion and Business Objects now are part of the two leading enterprise system providers.

SAP indicated that it intends to continue to operate Business Objects as a separate business. This will limit the cost-savings that SAP will realize from the deal, but it will probably be more attractive to customers that don't necessarily want to be tied to SAP. As the Wall Street Journal points out, it also helps SAP avoid having to deal with French laws that limit the ability of employers to conduct layoffs. Business Objects is headquartered in France.

OpenMFG is now xTuple

I really dislike vendor name changes, but here's another one. OpenMFG, the open source ERP vendor, has changed its name to xTuple. It appears the name change is the result of adding a second product, PostBooks, in addition to the organization's existing OpenMFG product. So the name of the vendor had to be changed to something other than the name of the product. It makes sense, actually. Because PostBooks has applicability beyond the manufacturing industry, a new name was also needed for the organization that did not imply a strictly manufacturing-orientation.

The PostBooks product is not a separate product from OpenMFG. It appears to be a subset of OpenMFG code that the firm distributes on a truly open source basis (under the CPAL open source license). This allows users with limited needs or individuals that want to prototype a limited set of functionality to do so without getting involved in licenses or contracts. There's a comparison chart on xTuple's website that explains the functionality present in each product.

There's more information on the CPAL license in this InternetNews article, which quotes xTuple's CEO Ned Lilly on reasons for going with the new license.

Related posts
Open source ERP gaining adherents
ERP Graveyard

Pro-sellout shareholder of i2 elects second board member

Amalgamated Gadget, a major shareholder of i2, has now elected its second board member, one David L. Pope. According to the SEC filing, Pope is employed by an affiliate of Amalgamated, which "acts as investment manager for R2 Top Hat, Ltd., which owns all of the issued and outstanding shares of the Series B Preferred Stock." Earlier this month, Amalgamated openly called for i2 to find a buyer.

An astute reader also informs me that i2 has taken down from its website all open job postings for customer-facing positions. He notes that previously, i2 had consistently been running 30-50 of these jobs at any one time. It's all speculations, but it could be an indication that the company is trying to reduce costs by not filling open positions, possibly to improve earnings prior to negotiation with potential buyers.

Update, Oct. 4: A second major shareholder, SAC Capital Advisors LLC, has just increased its holdings of i2 shares to 8.9% and promptly joined the call for sale of the company. At the same time, i2 is reporting that it has narrowed the list of finalists in its search for a new CEO and expects to name the winner in 30-45 days. If so, the winner may find him/herself with a very short resume entry.

Update, Oct. 15: The job postings now appear to be back online on i2's website. There are 51 jobs currently open, a level similar to that in the recent past. So, maybe the absence of postings was due to a website glitch.

Update, Oct. 17: Barrons is reporting that another major shareholder, SAC Capital, now holds 1.9 million shares (8.9%) of i2 and is also calling for sale of the company.

Related posts
Major i2 shareholder calls for sale of i2

Oracle reports another blow-out quarter

By my count, it's now three quarters that Oracle has reported financial results that exceeded expectations. The first time (Oracle's last year Q3), I questioned whether Oracle had achieved those results by draining its pipeline for Q4.

But then Oracle's blow-out results in Q4 ruined my theory. But I noted that Oracle co-President Safra Catz was predicting a whopping 20-30% increase in new license sales for Q1.

So what is Oracle reporting now for Q1? A 35% increase in new license sales, including a 65% increase in Oracle's application software revenue. Some other results: a 26% increase in revenue and a 25% improvement in net income. All of these results exceed just about anyone's expectations.

So what's going on? Certainly, a strong technology market doesn't hurt. Evidence of that is SAP's strong performance last quarter (it has yet to report the most recent quarter). Many other technology providers are showing strong results as well. Furthermore, I'm seeing and hearing of many new deals in process for enterprise software vendors generally, more so than in years.

But it's impossible to ignore the fact that Oracle's results also speak to the success of its acquisition strategy. Oracle keeps acquiring and integrating smaller vendors each quarter. This quarter's results include revenues from its pick up of Hyperion and Agile Software. Whether or not you like the trend toward vendor consolidation, of which Oracle is a major driver, it's hard to argue with success. We'll have to wait another three months to see if it can continue its hitting streak.

In the meantime, I am giving up on trying to predict Oracle's performance.

Related posts
SAP sales jump, defying Oracle's PR campaign
Oracle's Q4 beats estimates
Did Oracle just drain its pipeline?

IT budgeting policies and practices

Over at Computer Economics, we've launched a new survey on IT budgeting policies and practices. The survey covers the following areas:

• What categories of spending are typically included or excluded from IT budgets
• Where such spending appears: corporate IT budgets, divisional IT budgets, or user departmental budgets
• What types of IT expenses are charged back to users
• The trend for IT spending this year and next year
  

The survey will only take 10-15 minutes. If you or someone you know is interested in this subject, you can take the survey at the following link.

IT Budgeting Policies and Practices Survey

Anyone who completes the survey will receive a free copy of our analysis report that we produce from the survey results.

Major i2 shareholder calls for sale of i2

i2 has been having some tough times lately. CEO Mike McGrath resigned in July. Then the firm announced an earnings shortfall for its second quarter. It also said that it wouldn't be able to meet its previous forecast for the full year.

Now, one of i2's largest shareholders is calling for i2 to throw in the towel and search for a buyer. In an SEC filing yesterday, Amalgamated Gadget LP, said that i2 is too small to survive as an independent company and is better off to seek to be acquired.

Amalgamated isn't just blowing smoke. The size of its stake in i2 gives it the right to elect two board members. It says that it has already elected Michael Simmons, formerly from General Electric, as a board member and it is now seeking someone to fill its second open position.

i2 has been trying to recover for years from the tech downturn earlier this decade, but never fully seems to be able to get traction. Most recently, it has been trying to juice up its business model by adding more services to its traditional software product mix. This strategy, to me, has a lot of attraction in that supply chain management projects are often highly customized to the specific industry and supply chain than pure off-the-shelf solutions.

Nevertheless, an acquisition is probably the best path right now for i2, to put it in the hands of a larger firm that can better leverage its extensive product line, its impressive client list, and its patent portfolio.

The question is, who will step up to this opportunity? Names like Oracle and Infor are often mentioned, since they already have a history of making such acquisitions. But I think that some of the large IT services firms, both in the U.S. and in India, might be potential buyers. Think CSC, Accenture, IBM Global Services, or Infosys. I'm just speculating here, but since, as mentioned earlier, i2's business is increasingly services-oriented, such a combination might make a lot of sense.

Related posts
i2 seeks patent license shake-down fees
Former i2 CEO learns crime does not pay
i2 innovates with hosted vendor-managed inventory services
SAP: If you can't beat 'em, sue 'em
i2 kills off its SRM business
i2 fires 300, struggles to refocus

Total cost study for an open source ERP project

Baseline Magazine has an interesting case study on PerTronix Performance Products, of a small manufacturing firm that implemented the open source ERP system, Compiere. What's interesting is that the article reports the specific costs that the company incurred for the open source implementation. Thus, it provides a useful comparison with the typical costs for proprietary ERP systems.

Here are the metrics reported for PerTronix's open source ERP implementation:

1. Number of employees: 100
2. Number of named users: 20
3. Upfront costs (licenses, customization, training, and implementation): $20,000
   or, $1,000 per user
   
4. Hardware and operating system (Dell and Microsoft): $3,800
5. On-going support from Compiere partner: $12,000/year
   or, $600 per user
6. On-going support as percentage of upfront costs ($12,000 / $20,000): 60%
   

Now let's look at these metrics in light of a typical implementation of a proprietary ERP system:

• The up-front costs really stand out as exceptionally low: $1,000 per user is about one-fourth of the typical cost of a proprietary ERP implementation. For planning purposes, I generally assume about $2,000 per user for software, plus at least one times that for implementation, or $4,000 per user--usually more. Of course, the fact that there is little if any software license cost is a major driver of the low cost advantage of open source, here. (The article does mention "license costs," indicating there may have been some proprietary extensions of Compiere as part of the deal here--the article doesn't say. But whatever they are, they couldn't account for much of the upfront costs.)
  
  
• The $600 per user for on-going support is only somewhat higher than that for proprietary ERP, which generally runs about 20% of the initial license fee. Assuming an initial license fee of $2,000 per user, a proprietary ERP system would generally cost about $400 per year in maintenance fees, which cover software patches and help desk support. The $600 per user figure is certainly not out of line.
  
  
• Because Compiere is running on low-cost hardware and a Windows operating system, these costs are quite low, although many proprietary ERP systems, especially packages written for small and mid-size firms, run on this platform. So, we cannot point to an advantage for open source here.
  

So the major difference in cost between open source ERP and proprietary ERP lies primarily in the up-front cost. The on-going support costs are similar, which is not surprising, since those costs are largely driven by the cost of labor.

One might also point out the advantages of open source in terms of flexibility. If the lead development organization, Compiere Inc., goes out of business, PerTronix still has rights to the source code. If the Compiere implementation partner raises its support fees, PerTronix can go look for another, or it can hire its own support technicians. There is no vendor lock-in.

The article also discusses the benefits of the new system, which include centralizing of order processing and inventory management across multiple facilities, productivity improvements, ability to implement price revisions more frequently. But we can assume that those benefits would have been realized from a proprietary software implementation as well. Therefore, the real difference between an open source ERP system and proprietary software stand out more on the side of cost and flexibility.

Is open source ERP the right solution for all companies? Definitely not. These products, such as Compiere, Open For Business (OFBiz), ERP5, Tiny ERP, are still small in scale. Although they may have strong functionality in a few areas, they lack the overall breadth of features of established proprietary offerings. This is why there is almost always customization involved in the implementation.

But open source operating systems (e.g. Linux) and application platforms (e.g. Apache, JBoss), were once minor players as well, and today they have significant market share. In the case of Apache, it is the market leader. Open source is moving up the technology stack to business applications. Whether it can gain significant market share remains to be seen. ERP systems are much more specialized than operating systems and application platforms. It is not clear to me whether there are sufficient populations of developers to gain critical mass for these products, as there has been for products lower in the stack.

Who should consider open source ERP today? In my opinion, these solutions today are not so much an alternative to proprietary software as they are to custom development. An organization that knows it will need to do significant customization or enhancements to an ERP system should consider open source as a starting point instead of proprietary ERP. Organizations with unique requirements or unusual business models may be in this category. Modifying core code of a proprietary ERP system generally voids the warranty and makes on-going support less relevant, since the vendor will not support your custom modifications. Why not start, then, with open source ERP, where there is little if any charge for the source code? To me, that's a better choice than to start with 100% custom development.

I'm looking for more cost metrics on open source ERP implementations. If you're willing to share them with me, let me know.

Related posts
Compiere's open source ERP business model and growth plans
Open source ERP gaining adherents
Why organizations choose open source software
Build/buy pendulum swinging back toward build
Key advantage of open source is NOT cost savings
Open source: turning software sales and marketing upside down
Open source ERP
Buzzword alert: "open source"